TL;DR
Valuation is the dollar figure investors and founders agree a company is worth at a given round, and it directly determines how much equity a cheque of a given size buys.
What valuation means
Pre-money valuation is the company's agreed worth before the new money comes in. Post-money valuation is pre-money plus the new investment. A $1M cheque into a $9M pre-money valuation buys 10% of the company, because $9M plus $1M equals $10M post-money, and $1M divided by $10M is 10%. At pre-seed and seed, valuation is often set indirectly through a SAFE's valuation cap rather than negotiated directly in a term sheet.
Valuation isn't a scientific measurement. It's a negotiated number shaped by comparable deals, investor appetite, and how much leverage the founder has in that specific conversation, which is why the same company can receive meaningfully different valuation offers from different investors in the same week.
Why it matters for African founders
Public examples give a sense of scale in this market. Stripe acquired Paystack for a reported $200M in 2020. Kuda raised its Series B at a $500M valuation in August 2021. Flutterwave's Series D priced the company above $3B in February 2022. Those are outcomes on the far end of a spectrum most African startups never reach, useful for understanding what scale looks like in this market, not a benchmark to expect at your own early stage.
Common mistakes founders make with valuation
- Fixating on maximizing valuation at the earliest stage instead of picking the right investor and terms
- Not understanding that a high valuation now raises the bar you have to clear next round, a down round is a real risk
- Confusing a SAFE's valuation cap with an actual, agreed company valuation
- Negotiating valuation without modelling what it does to your cap table and overall dilution